Slowdown in equity-release loans

FEWER retired homeowners are cashing in on high house prices by releasing equity from their property. During the first six months of 2004, some 11,200 equity release loans were taken out with a total value of £517m, according to the Council of Mortgage Lenders (CML).

That was slightly below the 13,240 loans worth £597m arranged during the second half of 2003, but still above the 11,870 mortgages worth £504m taken out during the first half of that year.

The CML said the slowdown in people releasing equity from their property was unlikely to be significant, and probably reflected caution ahead of the introduction of a new regulatory regime for the mortgages that comes into force from the end of October.

It added that some older homeowners may also be choosing to trade down to a smaller property rather than borrowing against the value of their current home, although there was no clear data on this.

Michael Coogan, director-general of the CML, said: 'All the indications are that lenders and intermediaries are taking a cautious and responsible approach to opening up the equity release market, which is good news from a consumer protection perspective.

'Although consumers should think about all their options before deciding on a lifetime mortgage, these types of loans are extremely valuable for particular types of borrowers who are asset-rich but cash-poor, do not wish to move and understand the financial implications.'

Equity release or lifetime mortgages enable retired people to borrow money against the value of their property without having to move home.

Homeowners borrow a sum from a lender but instead of repaying the loan plus interest, interest is added to the amount they owe and the total sum is repaid when they die or sell the property.

At the end of June there were 71,500 equity release loans in place, worth £3.3bn. The CML said although this represented only a fraction of the total £800bn mortgage market.